Shared value is an investment thesis, not a CSR programme.

In 2011, Michael Porter and Mark Kramer argued in the Harvard Business Review that companies could create economic value by creating value for society, and called the idea shared value. More than a decade later, the term is widely quoted and less widely applied. In many companies it has been filed under corporate social responsibility: a budget line that sits beside the business rather than inside it.

At Valley Group we take the narrower, harder reading. Shared value is an investment thesis. It decides which businesses we back, how we build them and how we judge whether they are working.

If solving the social problem does not improve the business, it is a donation. If improving the business does not solve the social problem, it is not shared value.

Three questions in every investment case

Before we commit capital, every investment case has to answer three questions in writing.

1. What social problem does this business solve? Food security, unemployment, a skills gap, poor access to markets for small producers. The problem has to be specific and real in the places where the business operates.
2. How does solving it drive the returns? We look for the mechanism, not the sentiment. Emerging farmers in a supply chain can secure supply and lower sourcing risk. Training can supply the skilled people an industry is short of. Local manufacturing can replace imports and shorten lead times.
3. How will we measure both? Commercial and social results are reported together. A business that grows while the problem it set out to solve gets worse is not succeeding on our terms.

Three levels where value is created

Porter and Kramer described three levels at which shared value is created. We use them as a working framework across our eight industries.

• Markets. Serving needs that matter, such as quality, affordable food and accessible education, for markets that are growing.
• Value chains. Bringing emerging farmers and small businesses into the supply chains of the businesses we build, which strengthens both them and us.
• Ecosystems. Investing in the skills and enterprise development that make the regions we operate in more productive for every business there, including ours.

Why this matters to our partners

For co-investors, shared value is a test of durability. A business that is embedded in the economy around it has suppliers, employees and customers with a stake in its success. That is a different risk profile from a business that operates in spite of its surroundings.

For development finance institutions and impact funds, it is a question of evidence. Capital deployed in Southern Africa increasingly comes with the expectation that outcomes are measured, not described. Reporting commercial and social results side by side is how we meet that expectation.

For companies entering the region, it is practical. In South Africa, ownership, skills development and supplier development are part of how businesses are assessed under B-BBEE. A partner that has built these into its operating model from the start makes them a source of advantage rather than a compliance cost.

What it asks of us

Holding ourselves to this standard is harder than writing a CSR report. It means turning down businesses that would make money without solving anything, and being honest when a business we back is not delivering on both counts. We think that discipline is what makes the returns last.

If you are investing, expanding or building in Southern Africa and this is how you want to work, we would like to hear from you.